
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, June 5, 1990                   TAG: 9006050216
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A2   EDITION: METRO 
SOURCE: Los Angeles Times
DATELINE: WASHINGTON                                LENGTH: Medium

CREDIT LIFE INSURANCE CALLED RIP-OFF

Americans are being overcharged more than $900 million a year for the credit life insurance they buy when making installment purchases of cars, furniture and appliances, the Consumer Federation of America said Monday.

This is the "nation's worst insurance rip-off," said a CFA study showing that only 43 percent of the premiums collected are paid out in benefits, compared with approximately 75 percent for regular life insurance.

"Borrowers either don't know they've purchased the product, think it is required, or are manipulated . . . by sellers," said Stephen Brobeck, executive director of the CFA, a nationwide federation of 240 consumer groups.

Payout ratio regulations are set by state insurance commissioners. Consumers in Maine and New York receive payouts equal to at least 70 percent of the premiums collected by the industry, while residents of Alabama and Louisiana get just 22 percent.

The Virginia payout is 43 percent, or $339 over the course of a four-year, $10,000 car loan at 12 percent annual percentage rate, according to the study.

The purchase of credit life insurance on installment contracts is voluntary. Brobeck said at a news conference that "we're urging people to carefully consider whether they need insurance. If they consider it, most will reject it. It's so much cheaper to go to their regular life insurance agent and get another $10,000 in coverage."

The CFA study dealt with consumer installment purchases such as cars and home furnishings. It did not consider life insurance on home mortgages. Mortgage lenders may require life insurance on down payments of 10 percent or less of the purchase price.

The CFA prepared a national study of credit life insurance, looking at state requirements for payout ratios. In 1988, consumers paid $2.1 billion in premiums but received payouts of only $903 million, or 43 percent of the premiums.

If state insurance commissioners had imposed payout levels of 75 percent on this insurance, premium payments by consumers would have been cut by $910 million, according to the study.

The credit insurance industry disputed the report, and said it serves customers who might not otherwise get insurance.

by CNB